McKinsey Assesses Future Stock and Bond Returns

Laurence Articles

Are stocks’ glory days behind us? What about bonds? As the late Merle Haggard asked in song, “Are the good times really over for good?” A widely circulated McKinsey Global Institute (MGI) report, Diminishing Returns: Why Investors May Need to Lower Their Expectations, suggests that they are. The report makes the case that both stock and bond returns over 1985-2014 were exceptional and that investors should expect lower returns in the future.

McKinsey forecasts a real (inflation-adjusted) stock market total return, including dividends, that ranges from 4% to 5% in their low-growth scenario to 5.5% to 6.5% in their higher-growth scenario; those compare to a historical average of approximately 5.9% (since 1926). Both scenarios acknowledge the currently low growth rate of the U.S. economy – approximately 2% over the last several years, versus a historical average of 3.3% – but the second scenario has the growth rate gradually rising to its historical average.

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